![]() The Fed is in its quiet period ahead of the two-day Open Market Committee meeting that opens Tuesday, so officials can't comment on policy.įriday's consumer price index report showed headline inflation in May running at an 8.6% pace. The Journal report did not cite any specific sources for its reporting but said that officials could reconsider their stance on rates in light of several recent reports showing that inflation is not only high historically but is continuing to push upward. Markets expect the central bank to continue jacking up rates through at least the end of the year as it tries to pull inflation down nearer its 2% target. The Fed uses interest rate increases as a way to tamp down demand, which has generated inflation levels running at more than 40-year highs. A basis point is one one-hundredth of a percentage point. The 10-year Treasury yield shot up to 3.37% Monday, a surge of 21 basis points, while the 2-year yield, which mostly closely tracks Fed intentions, accelerated to 3.34%, a jump of nearly 30 basis points. ![]() Recent jumps in bond yields have pointed to the possibility of a more aggressive Fed at the conclusion of the two-day Federal Open Market Committee meeting Wednesday. In recent days, traders in the interest rate futures market have been cranking up their bets that the Fed will go beyond its traditional 25-basis-point hiking pattern. The CME Group's Fed Watch tool, which had been strongly pointing to a 50 basis point hike this week, was showing a 96% probability of a 75 basis point move as of Monday evening. Market pricing reflected the changed expectations. We repeat that we think this is not optimal policy and would separately be bad for markets." However, Guha noted that "until and unless we see some kind of unofficial clarification, we are forced to take the reports at what we think is face value: it looks like we were wrong and 75 is after all likely this week. ![]() Krishna Guha, head of global policy and central bank strategy at Evercore ISI, noted the unusual nature of the media speculation so close to a meeting, when policymakers are prohibited from making public statements.
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